US stocks fall sharply as recession fears grow; Nasdaq down 4%

US stocks plunged on Monday as relentless tariff wrangling and mounting anxieties from a possible federal government shutdown gave rise to fears that the US economy could be careening into recession.

The previous week’s steep sell-off resumed, gathering momentum as the session progressed, with all three major US indexes suffering sharp declines.

The S&P 500 had its biggest one-day drop since December 18 and the tech-loaded Nasdaq slid 4.0 per cent, its biggest single-day percentage drop since September 2022.

The S&P 500, coming off of its biggest weekly percentage drop since September, is 8.6 per cent below its record closing high reached less than a month ago.

On Thursday, the tech-loaded Nasdaq dipped more than 10 per cent below its record closing high touched on December 19, confirming that it has been in a correction since then.

The bellwether S&P 500 closed below its 200-day moving average, a closely watched support level, for the first time since November 2023.

“It’s a material drop for one day but we’re seeing the normal sort of drawdown that you see in an upmarket,” said Tom Hainlin, national investment strategist at US Bank Wealth Management in Minneapolis. “Concerns are mounting and investors are moving to the sidelines, but we haven’t seen growth worries manifest in data yet.”

On Sunday, Trump declined to comment on the negative market reaction to his on-again, off-again tariff actions against the biggest US trading partners, and whether anxieties related to his erratic policy shifts could nudge a softening economy into recession.

HSBC downgraded US stocks, citing uncertainty around tariffs.

But a Reuters poll of economists reflected the growing risks of recession for the United States, Canada and Mexico.

Tech stocks are under pressure from a stronger Japanese yen and a spike in sovereign bond yields, as investors unwind yen carry trades on expectations of an upcoming interest rate hike in Japan.

The carry trades involve borrowing yen at a low cost to invest in other currencies and assets offering higher yields, and that unwinding is at least partially responsible for the selloff in tech stocks such as the “Magnificent 7” group of artificial intelligence-related megacaps.

“If you want to know what’s going on with the US market, stop paying attention to tariffs and start paying attention to Japanese government bond yields,” said Thomas Hayes, chairman at Great Hill Capital in New York. “The carry trade is unwinding, and all that hot money was in Mag 7. So that’s why tech is down.”

Adding instability to the mix, lawmakers on Capitol Hill are scrambling to pass a spending bill to avert a government shutdown.

China’s retaliatory tariffs on select US imports are set to take effect on Monday, while US tariffs on certain base metals are anticipated later in the week.

The CBOE Volatility Index, opens new tab, often called the “fear index,” surged to its highest close since August 2024.

The Dow Jones Industrial Average fell 890.01 points, or 2.08 per cent, to 41,911.71, the S&P 500 lost 155.64 points, or 2.70 per cent, at 5,614.56 and the Nasdaq Composite dropped 727.90 points, or 4.00 per cent, to 17,468.32.

Among the 11 major sectors of the S&P 500, tech shares lost the most, falling 4.4 per cent.

Growth stocks fell 3.8 per cent, their biggest one-day slide since September 2022.

Tesla plunged 15.4 per cent, the stock’s largest single-day drop since September 2020, as the electric carmaker’s luster dimmed in the wake of billionaire CEO Elon Musk’s Department of Government Efficiency firings and protests arising from his support of far-right political parties in Europe.

Coinbase and MicroStrategy tracking bitcoin weakness, dropped 17.6 per cent and 16.7 per cent respectively.

Declining issues outnumbered advancers by a 3.64-to-1 ratio on the NYSE. There were 77 new highs and 290 new lows on the NYSE.

On the Nasdaq, 796 stocks rose and 3,641 fell as declining issues outnumbered advancers by a 4.57-to-1 ratio.

The S&P 500 posted 25 new 52-week highs and 17 new lows while the Nasdaq Composite recorded 32 new highs and 290 new lows.

Volume on US exchanges was 18.77 billion shares, compared with the 16.42 billion average for the full session over the last 20 trading days.